An interest rate agreement is an agreement between two parties in which one party, for an upfront premium, agrees to compensate the other if the reference rate is the same as the strike rate.

Question

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An interest rate agreement typically involves one party agreeing to compensate the other if the reference rate deviates from the strike rate, not if it is the same. This is used to hedge against interest rate fluctuations.

An Interest Rate Agreement Is an Agreement Between Two Parties